Last week, the Bureau of Labor Statistics announced that inflation over the last year reached a 40-year high. The Consumer Price Index, a key measure for inflation, rose 7.5% between this year and last, which is the highest rate increase since 1982.
This news probably doesn’t come as a surprise to most Americans: there is no escaping the fact that prices for rent, groceries, gas, and other everyday items are rising. And to make matters worse, most Americans’ wages have not risen fast enough to keep up with inflation, putting most households at a loss.
What many Americans may not know, however, is that at the same time that they’re paying higher prices, the corporations they’re paying are raking in record profits. According to the US Commerce Department, corporate profit margins are the highest that they’ve been in 70 years. This has led some members of Congress, including high profile figures like Senators Elizabeth Warren and Bernie Sanders, to accuse corporations of taking advantage of inflationary panic and their monopoly power to raise prices on consumers more than is necessary to increase their already-outsized bottom lines.
Officials at the Federal Reserve have discussed raising interest rates in an attempt to slow the economy down and, in so doing, curb the rise in inflation. The problem is that while this would limit inflation to some extent, it would also hurt, not help, many of the workers most impacted by rising prices. On the other hand, cracking down on corporate price gouging and monopoly power would go a long way towards actually helping to lower everyday prices for working Americans. And while we’re at it, taxing corporate profits – especially by enacting the corporate minimum tax through the Build Back Better Act – wouldn’t be such a bad idea either.
This week, we’re shining a spotlight on corporate price gouging in the face of inflation.
Economist explains record corporate profits despite rising inflation by Michel Martin
In an interview this week with NPR, Professor Isabella Weber, an expert on pricing policies, discussed corporate price gouging. She underscored how global supply chain issues brought on by the pandemic are real and very much responsible for rising inflation. Most customers know about supply chain backlogs and understand and accept that prices for products have increased as a result. But Weber contends that corporations have taken advantage of this situation and have increased prices on consumers over and above what is necessary to make up for any increased production costs, earning record profits in the process.
The non-inflated truth about inflation by Robert Reich
Former Secretary of Labor Robert Reich agrees that global supply chain issues take a lot of the blame for rising inflation. But, for Reich, this doesn’t explain why big-box, hugely profitable corporations have passed on higher production costs to their customers in the form of higher prices. It doesn’t have to be this way: if companies were facing a lot of competition, they would absorb cost increases to keep their product prices low in order to attract customers. This obviously hasn’t happened. Instead, corporations in a variety of industries – energy, food, retail, and more – face so little competition that they can and have worked together to coordinate price increases with the sole purpose of fattening payouts for investors and corporate executives.
As it happens, inflation is not just a US problem – it’s on the rise in virtually every other country around the world because everyone, everywhere has been adversely affected by the global supply chain backlog. But, importantly, inflation is highest in the US. Reasons for this are multifold and complex, but there’s no denying that corporate greed plays a hand in it. By one estimation, no less than 60% of increased consumer prices are going straight to corporate profits.
Rising inflation has led to calls for the Federal Reserve to raise interest rates, even as much as half a percentage point. But many economists are now cautioning that doing so would not be wise, because it would end up cutting jobs and wages for workers already suffering the most. Moreover, raising interest rates would do nothing to meaningfully tackle the things that are actually responsible for price hikes, like corporate greed and overwhelmed global supply chains. If Democrats are serious about tackling inflation, they should stop talking to the Fed and start going after corporate price gouging and monopolies.